This study evaluated the lagged effects of direct employee equity incentives on organizational innovation. Based on a sample consisting of 366 publicly listed high-tech firms in Taiwan, we tested the lagged effects in pooled-time-series data during the time period of 1995–2004. The fixed-effects models showed that direct employee equity incentive schemes indeed enhanced innovation as measured by the number of patents, and the positive effects lasted for 4 years. The results imply that direct employee equity schemes have lagged effects on organizational innovation.